Know the difference before you borrow

Both a home equity line of credit (HELOC), and a home equity loan (HELoan) allow you to borrow against the equity in your home—the difference between your home’s value and the amount you owe.

Both serve as an alternative to a refinance when you want to keep your current mortgage rate, and both may allow you to access more of your equity than a typical refinance will.

And funds from both can be used for anything from home repairs* to college tuition to consolidating high-interest debt. There are no restrictions on how you use the funds. 

There are, however, key differences to remember.  

HELOC 

• Often starts with a lower interest rate, but it varies based on the prime rate and may increase 
• Funds withdrawn as needed
• Starts with lower payments (sometimes interest only) before converting to fixed payments after a set period
• May have lower or no closing costs 

HELoan 

• May start with a higher interest rate but will remain the same for the life of the loan
• All funds provided at once
• Offers fixed payments through the term of the loan
• May have higher closing costs, from 2 – 5% of the loan amount 

A risk for all home equity loan products is the potential for a drop in home values. While values typically trend higher over time, if housing prices drop before you sell or refinance you could end up owing more than your home’s value.

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